Govt. to raise around Rs 5 trillion from domestic borrowings in 2024

The government is resorting to domestic borrowing of around Rs. 5 trillion to meet heavy expenditure in the forthcoming budget 2024, Finance Ministry estimates and mathematical projections revealed.

This has become necessary to pay interest for accumulated domestic borrowings including the high interest payable for Treasury bonds and the drastic drop in 2023/2024 revenue, ministry records shows.

The Appropriation Bill shows that there is a 12 per cent increase in expenditure to Rs.6.53 trillion planned for 2024 compared to Rs.5.85 trillion in 2023.

Interest payments of Rs. 2.63 trillion alone remain more than one-third of total spending in 2024, reflecting an increase of 20 per cent from 2023.

State revenue has come down due to massive amount of tax defaults due to failure to achieve estimated tax revenue collection in 2023 by introducing new taxes and increase in existing taxes.

The PAYE tax, initially projected to yield Rs. 68 billion in revenue for the government, was later revised to Rs.100 billion.

However, the latest figures as of the end of September indicate that the government has already collected Rs.107 billion through PAYE, achieving a 70 per cent compliance rate.

Extrapolating from this data, it is conceivable that the government could potentially earn up to Rs.125 billion by year-end with the current compliance rate or a substantial Rs.178 billion with full compliance. These numbers challenge the initial underestimation of PAYE revenue.

In stark contrast, the Personal Income Tax (PIT) fell significantly short of expectations. The government had projected Rs.115 billion in revenue by the end of last month, but the actual collection stood at a mere Rs.25 billion.

Extrapolating this data for the entire year reveals an estimated Rs.37.5 billion in revenue, far below the initial estimate.

This discrepancy highlights a concerning issue; voluntary compliance with PIT is distressingly low, while PAYE is collected more forcibly.

The budget 2023 had aimed at increasing tax revenue by 69 per cent to Rs.3.13 trillion from Rs.1.85 trillion while bringing down the budget deficit to 7.9 per cent in 2023 from 9.8 per cent in 2022.

The high tax revenue target comes as millions of Sri Lankans face the impacts of the ongoing economic crisis – high inflation, job losses, and shrinking disposable income.